The US is forgiving $40 million in student debt taken on by thousands of students

AP Photo/Christine Armario
The US Department of Education said Wednesday that it has forgiven $40 million in debt issued to more than 3,000 former students of the now defunct for-profit Corinthian College Inc.

The department also said it would accept claims under a so-called defense to repayment on an individual basis.

Under the law, a borrower defense to repayment provides loan forgiveness to students if their school committed fraud or broke laws.

Under Secretary Ted Mitchell and Special Master Joseph Smith held a press call on Wednesday to announce the discharges.

They announced they have placed more than 7,000 students into forbearance or stopped loan-collection status for those with pending borrower defense to repayment.

When pressed about the potential total dollar figure that could be provided in loan relief, Mitchel emphasized that any precise dollar figure would be "highly, highly speculative" but that it could be as much as $3.2 billion.

While the department is making progress toward its promise to aid students who were defrauded by for-profit colleges, questions must be addressed to protect students.

One issue addressed was that students who have been placed into forbearance by the department will still accrue interest on their loans, making their debt balances will grow, while the department reviews their claim.

Mitchell acknowledged this was an issue that the department wanted to work to rectify.

"We're identifying a number of issues, a number problems, with the law and regulation that we hope to square away so that we can better protect students," he said. "This is something we hope to take up with Congress."

The discussion only touched on federal-loan relief for loans dating to 2010, when the government started issuing Direct Loans. Currently, Federal Family Education Loan (FFEL) holders are exempt from relief, meaning anyone who took out a federal loan before 2010 will not have their loans discharged.

A representative from the department acknowledged that FFEL loans are not covered and said, "We are initiating a rule making committee to seek input from all stakeholders — including students and the higher education community — on a range of issues, including the proper treatment of FFEL loans, to help us develop regulations on this subject."

Perhaps the department will have come to a decision by their next progress report, which will be no later than October 15, according to Smith.